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Airbus veteran advises France on reviving economy

Sarah Dilorenzo, AP Business Writer

Former EADS chief Louis Gallois, left, poses for the media with French Prime Minister Jean Marc Ayrault at Matignon in Paris, Monday, Nov. 5, 2012, as he is presents a report to the government on how to improve the competitiveness of French industry, which has fallen behind its neighbors and is struggling to compete in a globalized world. (AP Photo/Thibault Camus, pool)

PARIS (AP) -- A respected French businessman called Monday for a "competitiveness shock" to restart France's economy, including cutting €30 billion ($39 billion) from payroll taxes for companies and employees, in a report the government asked him to write.

Louis Gallois, who used to run defense and aerospace giant EADS, the parent company to Airbus, said France needs to cut red tape for businesses and improve labor relations to facilitate reforms.

"I am proposing 22 principal measures ... to stop the slide, stop the stagnation, support investment," said Gallois, after officially handing over the report, commissioned after Hollande took power this spring. "This is what I call, in my words, the competitiveness shock, which is really a confidence shock."

There are doubts, however, that President Francois Hollande will follow the suggestions, having for weeks called for a quite different strategy — a slow tinkering rather than a shock.

Economists agree the situation in France is urgent. The world's No. 5 economy has been fading for years — its share of global GDP has halved since 1990 to 2 percent — and the debt crisis and the global recession have exacerbated the problem.

A slew of companies — from retail giant Carrefour to drug maker Sanofi — have announced job cuts in recent months. The government, in turn, has been trying to block the layoffs. Carmaker Peugeot recently backtracked on plans to close a factory after the government extended a lifeline of loan guarantees.

While countries like Italy and Spain may be currently worse off and struggling with high government borrowing costs, experts say they're making the necessary spending cuts and changes to their labor markets to right their economies.

Not so in France, which has resisted grand reforms, in part because labor relations are so acrimonious that such changes are considered political suicide.

Gallois said Monday that had to change.

"The social dialogue ... has to find a new dynamism, a new momentum," he told reporters. "Team France has to work together. Team France has to take up this re-conquest."

Industry and unions are currently involved in negotiations to improve France's competitiveness, but many big issues — like France's much-criticized 35-hour workweek — have been called untouchable by the government. Introduced under a Socialist government a decade ago to create jobs, the shortened workweek is seen as one of the party's most durable accomplishments.

Aside from the 35-hour week, one of the biggest complaints of employers in France is what they call the "cost of employment" — the payroll taxes they pay into social security for each employee. Gallois wants them to be slashed by €20 billion ($26 billion); employees would also get a boost with their share cut by €10 billion, under his plan.